EWS

Step 1: Approaches to identify risks and vulnerabilities

We will realize an EWS for S-BFI-C, providing a comprehensive risk analysis covering countries and sectors and aggregating the individual risk dimensions by using the following methodologies:

• Dynamic Conditional Correlations
• Copula functions and copula-based models
• Principal Component Analysis
• Regime-switching models
• Frailty models
• Dynamic latent component analysis
• Granger causality tests
• Shrinkage-based regressions
• Latent Class Analysis
• Contingent Claim Analysis (CCA)
• Dynamic Factor Models of Tail Risks

Step 2: Risk Dashboard – Jointly with ECB (MaRS) 

Our aim is to realize a risk dashboard in order to realize a risk mapping and identify potential vulnerabilities within the Eurozone:

• Sovereign Risks
• Bank Risks
• Corporate Risks
• Market Risks
• Credit Risks
• Funding and Liquidity Risks
• Policy Uncertainty
• Interlinkages
• Composite measures
• Monetary and Policy Intervention Perception

Step 3: Risk Thresholds and Warning Signals

Our aim is to realize a web platform through which verifying in real time the risk profile by web-based data imputation.

The system should periodically update the entire dataset and model estimates planned in the project.

Risk Reports articulated in 4 sections will be available for individual Sovereigns, BFIs and Corporations:

• Rating, specifying the membership risk category and corresponding risk value;
• Risk Anomalies, i.e. the risk indicators which appear as excessively risky;
• Risk Assessment, namely the sensitivity towards systemic risk;
• Risk Impacts, quantifying the potential risk severity of specific risk dimensions.